The Home Loan Guide

Determine What Type of Home Loan You Desire.

The first step in getting a loan is determining what type of loan you need. Here is a list and brief descriptions of the most common home loans:

First Mortgage - The primary loan that is used to buy a house or other real estate property. The mortgage loan is secured (protected) by the lender putting a lien on the house or property that you purchase with the loan. First mortgage programs offer the most flexibility of all loans. They can be at a fixed interest rate or a variable interest rate and they sometimes offer many great programs such as first-time homebuyer's discount, no money down, no closing costs, 100% loan (a loan for 100% of the value of your home) and pre-approved loans for prospective homebuyers.

A Refinance Loan - A loan that replaces the original loan or loans on your property with a new loan. These loans can be used to lower your mortgage interest rate, take out equity in your home (by taking a loan larger than your original mortgage), or to consolidate multiple home loans that you may have on your property. A refinance loan has the same terms as a traditional mortgage loan.

Second Mortgage - A mortgage loan that is secondary to the first mortgage. That means that if you defaulted on your loan, that a first mortgage lender would have first rights to the property before the second mortgage lender could stake their claims. Because a second mortgage has a higher level of risk, these loans typically carry a higher interest rate than a first mortgage. When evaluating second mortgage options, you should decide if it is better to get a second mortgage or to refinance your existing mortgage with a larger loan. To make that decision, look at the interest rate of your current mortgage. If it is very low, then it probably makes sense to get a second mortgage. If you feel that you could refinance a larger mortgage at or about the same interest rate, then you may be better using a refinance loan.

Home Equity Loan - A home loan used to withdraw equity from your home without refinancing your original loan. These loans are typically faster and easier to get than a typical mortgage. They are also appealing because you can get them to fund such things as auto or other miscellaneous purchases and they are typically tax deductible. Home Equity loans come in a variety of types, can be fixed rate or variable rate, and can span from 5 to 30 years.

Home Equity Line of Credit (HELOC) - This loan is similar to a credit card loan, except it is secured by a lien against your home and it is tax deductible. These loans allow you to withdraw cash only when you need it, and typically stay open for about 15 to 25 years. Terms on a home equity line of credit include fixed rate, variable rate, interest rate on unused portion, varying rates depending on percentage used, principal only repayments, and have many different loan lengths, typically between 10 and 25 years.

Fixed Rate Loan - A loan where you pay a fixed interest rate over the life of the loan. These loans typically have a higher interest rate than a variable rate loan, but they are also protected from upward swings in interest rates.

Variable Rate Loan - Also known as an adjustable rate (ARM) loan, this type of loan has an interest rate that varies over the life of the loan. The interest rate is typically tied to a benchmark interest rate such as the Prime interest rate or the LIBOR rate, and it can be adjusted on a daily, weekly, quarterly or even an annual basis.

Debt Consolidation Loan - A loan that replaces all of your credit card debt, auto loans, boat loans, personal loans and any other loans that you have with one loan. These loans are usually backed by the equity in your home and are beneficial because they can reduce your monthly payments and lower your interest rate significantly.

Bad Credit Loan - A loan for someone with bad credit. These loans typically carry a higher interest rate than a typical loan and they are typically made for a smaller percentage of the equity in your home. These loans are also known as sub prime loans.

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